LIVE MARKETS-Expecting "few surprises" from European banks

* European shares move in narrow range

* STOXX set for fourth week of gains in a row

* Earnings in focus: Ericsson (Hanover: ERCB.HA - news) , Telia, Reckitt

April 20 (Reuters) - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on

Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net

EXPECTING "FEW SURPRISES" FROM EUROPEAN BANKS (1409 GMT)

Yesterday we looked at whether European investment banks (IBs) are expected to join in the

equity trading boom enjoyed by their U.S. peers, and today Berenberg analysts weigh in with

their view that we're going to get "few surprises" following the guidance they've given so far.

While a pick-up in volatility benefited the equity trading divisions in U.S. IBs, Berenberg

says that FICC was disappointing, while fees were broadly weak.

In fact, Berenberg goes as far as saying that volatility is not always helpful, giving the

example of Credit Suisse (IOB: 0QP5.IL - news) where they believe the big jump in volatility drove clients to pull

back and wait for markets to calm before diving in.

Overall, Berenberg analysts are negative on IBs, singling out Citi and UBS (LSE: 0QNR.L - news) as their

preferred names. They like UBS more for its wealth management business rather than investment

banking, citing that IB only accounts for 25 percent of UBS' revenues.

They also echo a point made earlier in the week by Morgan Stanley (Xetra: 885836 - news) , that they expect European

IBs to lose share to U.S. players, with MS saying this could be because clients are becoming

more selective in a post-MiFID II world.

"The structural headwinds facing IBs remain intact. The debt burden, low rates, slowing

money velocity, falling collateral chains and derivatives regulation mean a return to the

profitability of the 2000s is highly unlikely," Berenberg analysts say.

(Kit Rees)

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TINY BUT PRICEY: EUROPE'S SMALL-CAP STOCKS LOOKING EXPENSIVE (1313 GMT)

Morgan Stanley quantitative analysts find Europe's small-caps have got to dizzying heights,

with valuations close to their highest ever. This could be a sign small-caps' outperformance

(see chart below) is about to turn.

"Periods of similarly elevated valuations have usually been followed by a period of

large-cap performance," says MS quantitative strategist Alix Guerrini.

On the other side of the valuation scale, low leverage stocks have hardly ever been cheaper,

he says. The relative price-to-book ratio of stocks with low leverage versus those with high

leverage is close to a record low - which seems counterintuitive considering the rising debt

pile in world economies.

"In a world of high debt levels, record tight credit spreads and gradually tightening

monetary policy, the fact that investors can buy companies with the strongest balance sheets at

close to their lowest valuations sounds highly appealing," he adds.

Global debt has never been higher, the IMF said this week - but Reuters columnist Jamie

McGeever argues rising debt levels aren't necessarily a bad thing:

(Helen Reid)

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WHY ISN'T INFLATION SPOOKING ANYONE ANYMORE? (1159 GMT)

Remember last time the U.S, 10-year yield rose above 2.9 percent? Yep, it was during

February's sell-off when the comeback of inflation got analysts scrambling to reassess equity

risk premia in a volatility spike that was arguably a pretty messy business.

Well, here we are two months later at roughly 2.92 percent, just 2 basis points from the

sell-off's peak with oil and metal prices surging and the fact that it's not spooking anyone is

puzzling a few analysts today.

Here's Deutsche Bank (IOB: 0H7D.IL - news) 's Jim Reid:

"The sudden heatwave (in London) has also coincided with a sudden boost in the rising yield

and inflation story. This story - which we thought would be the main 2018 theme - has been

overtaken by events over the last two months. However is it back to being front and centre now?"

Rabobank also noticed that inflation isn't scaring investors the way it used to:

"It is perhaps more remarkable that global equities have maintained their levels despite the

idea that higher price pressures could scupper sentiment", Rabobank analysts said, noting that

"the heady days of February’s volatility already seem to be a distant memory…".

One reason for the markets' calm is that there's a growing feeling that central banks, at

least in Europe, are taking into account decelerating growth and might act accordingly.

"Could it be that central bankers are once again offsetting such fears by pointing at the

heightened risks for the global economy from recent trade tensions and the recent string of

weaker economic data, such as in the Eurozone and the UK?" Rabobank asked.

It's true that we got some "unreliable boyfriend" comments after Carney's BBC stint.

"Carney struck back against any doubters that he is still king of the 'unreliable

boyfriends', with his comments casting a whole (load) of doubt that a further 25 bps rate hike

is a slam dunk," market strategist Marc Ostwald of ADM Investor Services said.

On the ECB's side, expectations are for a dovish outcome of the 26 April meeting while in

the U.S. markets are still undecided between three and four Fed hikes this year.

Here's the U.S. 10 year creeping back to its February highs:

(Julien Ponthus)

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MIDDAY SNAPSHOT: SUN SHINES, STOCKS CLIMB (1120 GMT)

European stocks have been climbing steadily throughout the session and are now broadly in

positive territory, thanks to gains for commodities stocks (though oil has just turned negative

following a tweet from Trump) and Ericsson's boost to the tech sector, while Telia sends telcos

higher.

Over in the U.S., stocks futures are roughly flat with earnings from General Electric (Euronext: GNE.NX - news)

and Honeywell firmly in focus.

Here's your midday snapshot:

(Kit Rees)

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HOW'S THE SHIRE SAGA GOING TO END? (1030 GMT)

There were plenty of twists yesterday in newsflow surrounding takeover interest for the

British rare disease specialist that sent its shares soaring 12 percent at one point but today

the stock has been hit by a degree of uncertainty as investors try to assess what's next in the

saga.

UBS looks to be optimistic that Shire (Xetra: S7E.DE - news) will eventually be acquired but also considers a

no-deal scenario, a painful outcome for those who bought the stock betting on a takeover.

"We think it is more likely than not a deal gets done, but who precisely (Takeda, Allergan (Frankfurt: A1W5NE - news) ,

other bidders) does the deal remains murky," UBS analysts led by Jack Scannell write today.

"Shire investors are keen to avoid the regret they might feel if they don't sell and then

the stock does badly. Regret avoidance can be a powerful motivator," they add.

But what if there is no deal?

Well, UBS sees the shares falling back to the 34-35 pound range - a 10 percent downside.

(Danilo Masoni)

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QUALITY STREET: LOW VOL PICKS (1007 GMT)

Talking of dips, as stock market volatility has now calmed down from February's spike,

strategists at UBS have taken another look at quality stocks with low volatility given that UBS

says the premium for low vol stocks has dropped to a decade low - the fastest fall in 20 years

(see chart below).

"This suggests above average optimism priced in to higher vol stocks. Lagged quality stocks

make sense today in their own right, or additionally, as a hedge against any downward shifts in

sentiment," say UBS' strategists.

So which stocks have made the cut for UBS? At the top of their screen of high quality stocks

which have lagged since July 2016 are buy-rated BT Group (Other OTC: BTGOF - news) , WPP (Frankfurt: A1J2BZ - news) and Pennon Group (Frankfurt: 3PNA.F - news)

, while STMicro, Anglo American (LSE: AAL.L - news) and Faurecia (Swiss: EO.SW - news) top UBS' list of

lower quality stocks that have outperformed.

(Kit Rees)

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THE CASE FOR BUYING THE DIP IN A "PEAK GROWTH" WORLD (0948 GMT)

The important word in "peak growth", is "growth", not "peak", or so Citi analysts seem to

argue in a note where they make the case for buying into dips even if economic activity is

fading from recent highs.

While some strategists, like Deutsche Bank's Sebastian Raedler, believe the trend in

economic indicators is key in setting the tone for equity markets, Citi analysts looked at the

issue and came back with a different finding.

Citi makes an important point, however, that when PMIs are above 50 but in a downward trend,

earnings per share continue to grow, but at a higher pace than shares.

"This is what we expect to happen in 2018 – global EPS up 13 percent, global equities up 5

percent," Citi analysts said.

The Macro Tourist newsletter makes a similar point saying that while tax cuts in the U.S.

can help boost EPS, investors can still wake up with a bad surprise if PE ratios retreat at the

same time.

"Even (Taiwan OTC: 6436.TWO - news) though earnings estimates are still ratcheting higher, the price-to-earnings multiple

has been sinking. The 1-yr forward P/E multiple was almost 19 in the days before the tax cut

announcement. That same measure is now sitting below 17", it said about the S&P 500.

"All I can say is don't hold out for peak P/E multiples. They probably hit their high right

before the tax cut", the newsletter argued.

Pushing aside markets, the big picture still seems to be that the world's economy is in good

shape according to this chart from Citi:

(Julien Ponthus)

*****

COMMODITIES SLIDE, TELECOMS GLIDE (0719 GMT)

Basic resources (Frankfurt: W8Z.F - news) stocks have gone from top dog to bottom of the pack today, falling 0.5

percent as metals prices slide back.

That weakness, along with falls in healthcare stocks (notably Shire (Hamburg: 3979575.HM - news) -3.6% after Allergan (Berlin: 28551749.BE - news)

ruled out a bid for the company), is pushing the European benchmark down 0.2 percent, while the

FTSE 100 gains 0.5 percent thanks to a weaker pound.

Telecoms stocks however are enjoying stellar gains. Telia is up 7.2 percent after results,

and Ericsson nabs the top spot on the STOXX, jumping 14.5 percent after its earnings and margin

beat expectations, boosting investors' confidence about its restructuring. Rival Nokia

is also being pushed up by Ericsson's strong performance.

Chipmaker ASM International is losing 9.4 percent after its earnings fell,

weighing on peers STMicro, Infineon (Xetra: 623100 - news) , ams, ASML (Milan: ASML.MI - news) , and BE Semiconductor which were already pretty

poor performers yesterday.

And Reckitt Benckiser is down 4.5 percent, hitting its lowest since August 2015,

after its results.

(Helen Reid)

*****

BEFORE THE BELL: WHAT YOU NEED TO KNOW (0649 GMT)

European shares are expected to open without clear direction today as investors digest a

flurry of earnings updates, although the FTSE could see extra support after comments from the

Bank of England governor dampened expectations for a rate hike in May.

Futures are trading between a 0.1 percent fall and a rise of 0.3 percent.

The rally in commodity prices has softened and that will likely lead to some profit-taking

among mining stocks, seen down 0.5 percent in pre-market, although their spectacular gains this

week have put the pan-European STOXX 600 index on course for its fourth straight week of gains.

Results released this morning could give some support to the broader market with a smaller

than expected loss at Ericsson seen pushing its shares up as much as 10 percent at the open,

while in the battered telecoms sector, Telia is seen rising after it announced a welcome share

buyback plan as Q1 core earnings slightly topped market expectations.

Another disappointing update from Reckitt Benckiser (Xetra: A0M1W6 - news) is seen driving its shares down 1-2

percent after its quarterly sales growth missed estimates, further stressing gloomy prospects

for consumer goods makers.

(Danilo Masoni)

*****

EARNINGS THE "CIRCUIT BREAKER"? (0636 GMT)

It's going to be another results-dominated trading day today, and looking more broadly than

the individual stock level this earnings season is certainly expected by many brokers to bring

greater certainty to a stock market which has been faltering.

As Deutsche Bank puts it, "we see the recent correction as overdone, and the first quarter

earnings season could act as the needed circuit breaker." Remains to be seen if earnings will be

strong enough to do so.

Here are a few more headlines:

Britain's Reckitt Q1 sales growth misses estimates (shares seen down 1-2%)

British regulators to fine Barclays CEO, monitor whistleblowing programme

Royal Mail CEO Moya Greene to retire; Rico Back to take over

Ceva Logistics aiming for May 4 floatation

(Helen Reid)

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FTSE FUTURES UP AS CARNEY WEAKENS POUND (0602)

European stock index futures have opened little changed, although futures on the

internationally-exposed FTSE were edging up, by 0.3 percent, supported by weakness in

the pound.

In Asian trading, the British currency flirted with two-week lows against the dollar

following comments from the Bank of England Governor Mark Carney dampened widespread

expectations for an interest rate hike in May.

"Dovish comments by governor Carney in an interview published after yesterday's close throw

some serious doubts on the prospect of a BoE May hike," ING rate strategists say.

Here's your futures snapshot:

(Danilo Masoni)

*****

EARLY MORNING HEADLINE ROUND-UP (0548 GMT)

It's again a quite heavy day for earning updates with number of companies ranging from

Ericsson to Telia having already released their results. Here are some of the headlines that

have caught our attention:

Ericsson posts smaller Q1 loss than expected

SSAB Q1 profit lags forecast after production problems

Auto parts group Faurecia posts higher Q1 sales

Telia Q1 core profit just beats forecast

Southwest challenged engine maker over speed of safety checks

Steag expects more deals in Germany after RWE (IOB: 0FUZ.IL - news) -E.ON swap

Italy's Pop Bari sets aggressive bad loan target -sources

Greece accepts Snam (Amsterdam: QE6.AS - news) -led consortium's offer for gas grid DESFA

Air France (Paris: FR0000031122 - news) unions to continue strikes into May despite pay offer

Germany's Talanx (IOB: 0QA8.IL - news) to raise stake in Vietnam insurer PVI Holdings

And here are our main market stories so far:

Asia tech shares spooked by phone warning, oil near highs

Tobacco and tech drag on Wall St; yields boost banks

Nikkei flat as tech sector losses offset financials rally

Bump in long-dated yields ends two weeks of curve flattening

Pound on backfoot as doubts rise of BoE (Shenzhen: 000725.SZ - news) rate hike in May

Gold slips as U.S. rate rise hopes, easing global tensions weigh

London aluminium, nickel slide as sanctions rally fades

Oil close to late-2014 highs on supply cuts, strong demand

(Danilo Masoni)

*****

MORNING CALL: EUROPEAN SHARES SEEN LITTLE CHANGED (0519 GMT)

European shares are seen opening little changed this morning although the rally in commodity

prices may allow the STOXX 600 index score its fourth straight week of gains. The

pan-European benchmark is up 0.7 percent so far this week.

Financial spreadbetters expect London's FTSE to open 21 points higher at 7,350, Frankfurt's

DAX to open 7 points lower at 12,561 and Paris' CAC to open 3 points higher at 5,395.

Over in Asia, shares slipped as a warning on smartphone demand from the world's largest

contract chipmaker slugged the tech sector, while high oil prices stirred inflation fears and

undermined sovereign bonds.

(Danilo Masoni)

*****